When should you refinance?

This comes from Dave Ramsey's Total Money Makeover Web site:

Dave explains to a caller when he should consider refinancing his house.

QUESTION: Jason asks when it’s wise to refinance a mortgage.

ANSWER: You should refinance when you can save enough on the interest rate to pay for the closing costs before you move.

If you have a $100,000 loan and you can save 1% a year by refinancing, you would save $1,000 a year. If your closing costs are $4,000, it would be 4 years before you got your money back for doing the refinance.

A good rule of thumb is to refinance only if you save at least 2% or more. If it’s less than that, you’re only looking at a break-even situation.